Have You Had a Financial Check Up Lately?

A recent article we reviewed shared the late James Gandolfini’s estate plan and how it was structured. He bequeathed a large majority of his estate to his daughter, but a very high percentage of it is going to be lost to estate tax, which will be due within 9 months. The government doesn’t want assets, they want cash, so depending upon the makeup of Mr. Gandolfini’s estate, they may have to liquidate properties or businesses or real estate in order to pay that tax. It is kind of remarkable that a very wealthy and smart man didn’t have the right planning in place. I asked Jonathan Gassman for his comments or thoughts regarding ways for people to avoid a similar mistake:

I don’t know all the facts of his particular estate, but it is clear from my perspective, that most people think that their estate and financial plans are in good working order. For example:

• They have a will.
• They have trusts established.
• They may even have Powers of Attorney and healthcare proxies.
• They bought some life insurance, but some time ago.
• They have an investment guy and he’s making them money.
• Their tax guy gets them a refund every year.

So their perception, which is their reality, is that everything is properly set up. But people don’t know what they don’t know. My counsel would be really kind of simple:

1. Just like you go to the doctor every year for a checkup (we hope), or you go to the dentist every so often to have your teeth cleaned (we hope), you need to get into a habit or ritual. Just like you do your taxes every year, you should have an annual financial checkup. Think of it as a financial health checkup, where you sit down with a trusted advisor or group of advisors annually to review your current state of affairs. In order to best do that, you will want to provide all of your financial documents so it can be neatly arranged into a simple balance sheet and profit/loss statement to evaluate. By doing such, you can evaluate what you have and determine if it is still valuable or not. For example:

• You bought something 20 years ago
  • Do you keep it?
  • Do you sell it?
• The life insurance you bought 22 years ago
  • Do you still need it?
  • Do you want it?
  • Is it setup right?

Things change. Life changes. Tax laws change. Everything changes. The market is up, the market is down. There are new products and services that are available to serve the needs of the affluent and the not-so-affluent. Having a financial health checkup or evaluation to determine where you stand and how you are doing according to your goals is the first thing that needs to be done before moving forward.

2. I think the second thing that people should consider is why they have done certain things. You may have gone for term insurance a long time ago because you were going to put your kids through college and, God forbid, something happened to you. You wanted your kids to have college paid for, or your mortgage paid off, or that’s not the reason anymore to maintain your life insurance. Maybe the play is:

• To leave a legacy
• To provide for long term care benefits
• To provide for retirement benefits

People’s goals change over time, so they need to reassess the original intention in doing something. It doesn’t mean it was right or wrong when you did it, but your needs and wants may have changed since then. So the second thing I would suggest doing is assessing or internalizing why you have done certain things, and whether you want to keep doing things the way you have done them.

3. The third thing that I would consider, only to prevent things falling through the cracks, is finding a good advisor. Have one close, trusted advisor who is knowledgeable with the different carriers. I think a CPA, if he is a good one, is one of the most valuable advisors on a team. He/she has good tax knowledge because they can integrate all the different aspects. They may not be the investment guru. They may not be the life insurance expert, but with their knowledge of tax law and with the general financial knowledge that they have, a good CPA/CFF is probably one of the most valuable people to have on the team. This person will have a good working knowledge of your personal finances, how things are integrated, how the pieces all fit together – like what type of mortgage you should have and what type of a will you should have. He’s not the guy who is going to draft the will. He is not going to be the guy that sells you the life insurance, but if he is knowledgeable and he’s really good, he could be a pivotal player, a critical element in determining the best for the client.

How often should people be reviewing their estate plans and estate plan documents?

People slice and dice that question a lot of different ways, but it is truly my belief that you do this at least every 2-3 years or when there is a life-changing circumstance. Every 2-3 years, you are pretty much going to be on top of tax law changes that may occur at the estate and gift tax level. Someone is born, someone dies, you retire, you reach a certain milestone or age. Those are the things I would think about as being triggering events that would cause you to want to at least pull out the will and read it.

• Is it still your intent?
• Does it still reflect your wishes?
• Is this still what you want to see happen in the event of your demise?

You want to do it once a year? I’m all for that. A quick read, quick review. But I think at least once every 2-3 years like clockwork or after those triggering events.

With all this that just happened with Gandolfini, it is definitely the time for everyone to pull out their wills. The media is great at making a big deal out of this situation, which makes it a great opportunity to get out in front of clients and say, “Hey, let’s take a look at what you have and address any issues.”

In closing, as a CPA who provides financial services to our clients, we offer comprehensive services. I think the key is communicating and educating clients, prospects, and advisors as to what you do. You help change people’s lives because without that, you can just sit in your office. You can be the greatest CPA, financial planner, chartered advisor in philanthropy and have a million initials behind your name but if you are not out getting in front of your clients, telling them what they need to do and how important it is, none of it matters. It is all about results.